For most Canadians, retirement is a major financial goal that requires considerable financial commitment. Whether you have already established a Retirement Savings Plan or are just beginning, it is never too late to begin saving. Keep these 7 principles in mind when retirement planning.
1. DETERMINE YOUR RETIREMENT INCOME NEEDS
Retirement Planning is a primary financial goal for most Canadians. Whether you have a savings program in place, or are interested in one now, the first step is to determine how much will be available to you at your retirement.
2. REMEMBER THE THREE “S”S
Save now, Start now and Stay invested. Begin by investing what you can and try to increase this amount every few months. Using a pre-authorized deposit plan allows you to make regular contributions to your retirement savings plan. Remember, small amounts can accumulate significantly over time. No matter when you start investing, the key is to stay invested as long as you can. The longer you hold your investments, the more they will benefit from compound growth.
3. THE IMPORTANCE OF DIVERSIFICATION
Diversification is the financial equivalent of not putting all your eggs in one basket. You spread your risk by investing in several different investments, therefore reducing the impact of one poor performer in our portfolio. Experts agree that the asset mix of your investments – safety, income and growth, account for more than 80% of your portfolio’s return.
4. START EARLY
It doesn’t take a lot of money to build a nest egg if you start early enough and let time work for you. Make your first contribution as early as possible in your working career to benefit from compound interest.
5. CONTRIBUTE REGULARLY
Taking a slow and steady approach to building your RRSP/TFSA, setting aside small amounts regularly is the best way to ensure your success. Freeing up a large sum of money at year-end is often difficult and is the most common reason people fail to maximize or sometimes even make their annual RRSP/TFSA contribution.
6. CONTRIBUTE THE MAXIMUM
Make a point to contribute your maximum RRSP/TFSA amount whenever possible. Make sure to determine whether an RRSP, TFSA or both are best to help build your nest-egg.
7. CONSIDER YOUR RRSP/TFSA UNTOUCHABLE
While it can be a valuable safety net in times of financial crisis, don’t tap into your RRSP/TFSA unless you absolutely have to, unless it is part your planned strategy. Funds you withdraw today will not be there when you need them at retirement.